tv [untitled] September 23, 2011 10:00am-10:30am PDT
addressed. some of the items are the needs driving our system. we really are targeting these bonds to go to our basic repair needs. we are having an independent consulting firm look at our parking garages and identify the needs and what needs to be done. this next slide walks across what has to happen before we can issue the bonds. you and the board of supervisors have to authorize the issuance, and the comptroller has to certify that we have the ability to incur the debt, and this is laid out in the city charter. we have had ratings from two ratings agencies. we envision standard and poor's and moody's would be the ratings agencies, and they will be evaluating the credit worthiness to actually issued debt and assigned a rating to our debt. next on the agenda are two items we would like you to approve.
one is a debt policy. this is just best practices for any issuing entity should approve a debt policy which lays out the parameters of debt issuance. most of the other city departments that issue that had a policy and most other agencies have a policy. this is a good thing, and credit agencies look at this as a good financial measure for us to take. we're also asking us to be approved a financial reimbursement, which allows us to reverse ourselves for any cost incurred associated with the debt prior to debt being issued. a lot of dialogue is going on right now about the financing structure and what we will be presenting to the ratings agencies. so we have actually look at our revenue source. we think it is a very nice picture for us to present. unlike most systems that only rely on one source of revenue, we have a really nice picture to show to rating agencies here we
are held by parking and general fund, which most transit systems do not have. also, the market is really nice for issuing bonds right now because it is very few bond issuers out there right now for municipal debt. the market is looking for bonds, and there will be a lot of competitiveness, and we believe that will drive rates even further down. combined with the low rates that already exist, we believe we can get somewhere in the range of 4% or 5% over 30 years, which would be very retracted. what we're trying to figure out now is what revenues would be pledged and what would be legal for us to pledge. for example, the general fund baseline. lawyers are looking at whether that can be pledged or not. there's concern that if we do pledge them, it could be perceived as a general obligation debt, so we wanted to potentially remove that from the pledging stream of revenue, so
those are the kinds of discussions going on now. the credit factor -- this is what the rating agencies were looking at. i envision they will want to speak to both director reiskin and some of you individually to get the sense of the strength of the leadership, the strength of the board, the policy direction. they will be looking at our revenue sources, operating performance and fund balance history. the ability to maintain a balanced budget, and some of the regional economy and demographics of san francisco. we had some very good messages in some of these bullet points. some of them are not as strong, so we have to put together a picture of the mta that is balanced and will convince the credit ratings agency that we are actually a good rating, so will be focusing a lot on the management. charter authority is very strong on diversity of revenue. what will not be as strong is our financial picture and fund balance history and all the
paper about deficits and raising fares, but i think we have done a pretty good job of establishing things like the automatic indexing policy, the reserve policy, which will go a long way to offsetting some of the concerns they might have. here is an idea of some of the recent transit debt issuances. most transit systems are issuing debt, and they do issue that for similar types of projects we are envisioning. there are a variety of ratings, but i have targeted, so there is disbursed in six special performance for our rating, so i think we are in good company. we will not be the first transit system out there. here is some of the national debt that has been issued. transit systems are very known
to the credit markets. we are one of the few that have not issued debt, so i do not think this will be a new entity. they will understand us, or what they will have difficulty understanding is our uniqueness. we are unlike a regular transit system. we are more of the department of transportation, so we will have to convey that message to them. one of the things we will be doing in addition to issuing new money for the project will be taking out or refunding existing debt that is on our books for two reasons. we believe we get lower interest rates than currently exist in the outstanding debt, but it also allows us to address some of the non-corporation debt that is outstanding. there are some underlying sure to policy issues with one of them. some of them -- the uptown parking corp. is an uptown parking garage, so we have been talking to the recreation and park commission.
they will have to approve the funding and the new money peace. staff are evaluating what level of participation they want to produce it in, and we will come back and let you know when they have made that decision. this summarizes the debt we have outstanding and we propose to take out with the new revenue bond. here are some numbers. we are looking at $108 million in revenue bonds to generate about $100 million net proceeds, of which, about half and half will go to parking garages and have to the munich state of good repair. that will generate an increment of about $6 million of debt service for us. that is less than 1% of our budget. i think that we can convince both the controlelr and credit rating agencies that we can absorb that level of debt service. another $50 million will be issued to us to refund the outstanding bonds. the market will see about $150
million issue. and so the -- how do we come up with the debt side? people are asking. this is sort of a test bond for us. we did not want to make it too big because we have to develop some internal procedures in product delivery, how we will be able to use the money, how we are going to use the debt proceeds, are we set up to do that. we did not want to make it too small because the cost would be prohibited. we settled on this amount that we feel is sort of the right size for the first issuance. it is big enough to convince markets and credit entities that we are serious about our financing structure, but not too big where we have significant debt service and potential product delivery issues. this is what the aggregate debt service picture looks like. blue is the refunding debt service. it is about an increment of
about $6 million over the 30 years. these are the recent interest rate trends. we would probably attract the top line, which is the revenue bond index. we hope to get somewhere in the 4.5% or 5.5% range, which is very attractive. who knows what this will look like a couple of months from now, but we do not see any signals that there is an impending tick up in interest rates. let me talk a little bit about the debt policy before you on the next item. these spell out the guidelines and best practices. when should we borrow? what products should we debt finance? you do not want to finance a project with an asset life of five years when you are financing a 30-year window, so we are financing the right type of assets.
what would be the coverage ratios that we would not go over? our coverage ratio is that we would never exceed the level of debt service above our operating budget for those kinds of factors so we are constrained so that we do not see a scenario where more and more of our operating budget is eaten up by debt service and that is available for other needs. we are constraining our debt borrowing within this policy. it also will be a good tool to communicate to the credit rating agencies and market here they have policies in place that will help guide the agency and most of the issuing entities as listed below also have established the policies. the reimbursement resolution -- this is exactly what i mentioned before. i will not spend a lot of time on this unless you have questions. the next step is to identify the list of projects. we're very close and told the
cac that we will go back to the with a list of projects and come back to identify what projects will be financing because that will be important for the bondholders. the recreation and park commission and you will have to approve the financing documents. we are also talking about creating a bond oversight committee. i think this is a key feature that the m.t.a. board will be coming in front of you and asking you to create an oversight committee similar to other entities so they can follow how we're doing with bond proceeds. are the proceeds getting spent timely and with the intent we normally did? otherwise, we will not have to focus on the bond proceeds. unlike grants, there is a significant risk if you do not spend bond proceeds and have them spinning around, or used in them for purposes that you did not say you were going to. i think the bond oversight committee -- director reiskin and i have had good conversations about the bond
oversight committee. then, the rating agency presentation. these will be huge. pretty much they do not know us. we are a new entity. a lot of time will be spent honing down on key script messages for the credit agencies so they understand who we are, what we do, what benefits we have, the strength of our entities, and that will lead to discussions on creating these presentations. we have to go aboard supervisors and the controller's office also for the steps. we've had significant discussions. they are aware of financing plans, and we are working with them on each step of this project. with that, i am here as members of the financing team to answer any questions you may have. director nolan: thank you.
i have a couple of quick questions. next is the recreation and park commission. i assume they do not have plenty of things to say that affect the bears directly, so it is not the whole thing. >> that is correct. they will be authorizing issued debt on the three we oversee for them. >> the second thing is the body -- what is the advantage of having them involved in this thing? the incorporation? >> they actually -- the structure currently as exists now, there are five non profits for the outstanding debt. what this would do would remove them from the issuance, and we would be the issuance, said they would no longer have a role in the debt side of the house. however, we were amending the leases. they would continue to exist, but in an operating lease type of arrangement until they decide what to do, if there are any
additional steps you want to take with the nonprofit. >> thank you. this should help with employment issues around here, too. that is good. ok, members of the board. director heinicke. director heinicke: just to follow up, as i view it, there are to be will propose components about this. there is $100 million in new revenue from new issuance. and then, excuse my retail terms, but taking all of our other existing bonds and refinancing them into one $50 million apiece. the second part is what would address tom posey point because we would take all this existing profit, refinance it, but it under our umbrella at a new and preferable rate. i realize it is a wonderful time to be borrowing comparatively. i assume the cost of this refinance, for lack of a better word, is offset by the savings we would have going forward with the new interest rates and
things. >> net, yes. >> ok. and on the bigger issue, i have no doubt -- and i hope the credit rating agencies here this -- that we would be able to repay a bond of this size or pay it as it goes, but the money does not grow on trees. it is going to come from somewhere. you touched on a few things. maybe we do not need to answer these today, but i certainly want an answer on this before we vote to issue a bond. what is the status of the bond, how we get into compliance with our policy? is that something you would like to answer today or would rather answer at another time? >> i can answer it. we have the reserve fund you established, which allows us to use the reserve. i have established another bond reserve fund, established about four or five years ago.
that is up to about $50 million in addition. we were showing the debt rating agencies. they will see a $30 million reserve. >> that leslie allocated to debt service needs as opposed to operational needs -- that would actually be allocated to debt service needs. >> basically, none of them would be allocated. it would be a backstop. director heinicke: that is what i mean. >> half of it would be a reserve fund to give comfort to the credit rating agencies. our annual debt service would be in the range of $10 million or so in the first several years. we will budget that in the operating budget and give the rating agency some comfort. director heinicke: right. i get it. that will be comfortable for rating agencies, but the broader discussion, and we can do this at the workshop and perhaps before we issue, is a $15
million or $30 million reserve is a far cry from what we had before. i realize you have been diligent about getting us up from a lower number of where we were before, but i continue to believe that as unhappy as some people were with the very limited service cuts we made and limited fare increases, one of the truly and some things that happened around here was we were able to survive much better through the economic crisis than other agencies because you and others had billed as a reserve. i think we need to continue to be diligent about that because who knows when the skies will get cloudy again. that is question one. i appreciate the answer today and i think we need to discuss that more. not only the status of the reserve but also the plans for the reserve going forward before we issued debt. you mentioned the indexing policy. i would want to have some understanding that we meant what we said when we passed those indexing policies and that we
are not going to look to items we have indexed if we came to a debt situation where we had a service need. i think that is what those policies mean. i think that gives the lenders comfort that our revenues are actually going to increase with the cpi, but i want to make clear that that sort of a ceiling, not a minimum as we go forward. that brings me to maybe a question that is too early, but we are going to borrow $108 million. we are going to pay. we're going to get $100 million. it% is allocated to parking garages under the plan. -- 50% of it is allocated to parking garages under the plan. will it be similarly allocated so that the businesses that moneys will be offsetting that? i would not want a situation where we are borrowing $50
million to rehab parking garages, and yet the cost of that is spread over our system, systemwide, if that makes sense. >> the charter right now says parking revenue goes to muni. we believe that by spending $15 million, revenue should increase, so that is our hope. right now, some are not really very attractive to park in. so any incremental revenue that comes out will be given to muni, so that is the charter. we are anticipating muni getting more money out of fixing them. director heinicke: i understand the money comes back, but i want to know that the plan is by borrowing $50 million to spend, we will get more than $50 million so this will not be a situation where we are asking our bus riders and everyone else to subsidize rehab of parking garages, that the revenue will actually come out of the parking
garage system itself once we make the rehab. is that the plan? >> that is the plan. >> if i may, through the chair, i want to add that while we certainly want to find a positive return on investment for any capital improvement we do, there are some needs that are basic, structural facility needs that we need to address whether there is a return or not. this would provide a vehicle for it as it happens for an asset like a parking garage, we have a reason to expect a return on investment. we have many other facilities that have similar needs that may be part of that that there may not be returned, but their assets that have not been properly maintained over the years and need some capital work to get them into decent shape. >> i understand, and i realize there's some things we have to do for safety or other reasons, but i have less of a fundamental problem with not getting a return out of an investment in
the system, systemwide that benefits transit generally -- i mean, we all know that we are subsidizing transit. but the goal is not really to be subsidizing private off street parking. when you tell me half of the bond is going to be have parking facilities, i want to make sure we are getting that money back and not subsidizing private off street parking in the same way we subsidize transit. my final question is this, and i think you may have addressed this with the committee. i am channeling jerry lee. if he were here, he would ask this question. the control will resign in the mta and nt alone so that we will not have to worry about work order issues and things like that going forward. is that the case? >> yes, the bond documents will be very strict. >> in terms of a time line, when would you anticipate going to the bond rating agencies? >> we are working on that now,
but we envision going to the rating agency by the end of this calendar year for issuance in the early part of next year. that is our timeline now appeared we have to go through one step, which is called allegations that. it pretty much allows the court to -- what we will do is tell the courts we are going to issue debt and give them a 60 day window to say we do not believe they have authority. that validation is what has lengthened the process a little longer than we originally thought, but we want to hit the market because the rates are so good as quickly as possible. director nolan: members of the board? members of the public? >> no members have turned in any speaker cards. director nolan: 12 and 13 we can take as one. 11 was information. is there a motion and second? motion to approve both resolutions.
>> my apologies, mr. chairman. we are having technical difficulties. thank you. good afternoon. over the next several months, we will be providing you with a number of projects on an ongoing basis to talk about a state of good repair in the system. this is perhaps one of our key projects. because it is not an exaggeration to say that the signal cable or the local cable we will be talking about in a minute is the very heart of the system. it is in fact the means to carry all the key data through the
system. it facilitates the transmission of information between our trains, the waste site equipment, and the back up computer. it is both state of good repair and continued functioning at a high level of reliability is the way that will allow us to continue to provide good, reliable, safe service. this is a critical project to us. ok. thank you for the talented i.t. team. first of all, in terms of the cable itself, this is in fact
the cable that we are talking about. if you are on the platform in the subway, this is about to be installed -- i've borrowed this. it will not look exactly like this in terms of -- it sits in the center of the track up on some streets. i think it is important to remind the board that we have a unique system. unique in the sense that when we are on the surface or outside of the subway, we have a manual operation. your grandfather is railroad, if you will, in complete control of operators obeying rules and signals. inside, we have an automatic train control system. this is the heart of that. our extension cord. without this, we are not allowed to move the train. we cannot. this clearly is a critical part.
it is also the part that facilitates communication between the vehicle itself and the other parts of the system. why do we need to replace it? i would also remind the board first of all that this cable, which is about 15 years old, is -- any time there has been a problem with it, it has failed safely. it continues to perform at a high level. one of the reasons we are replacing it -- perhaps the main reason -- is the nature of our operation. this cable should last for approximately -- probably 100 years. given there's cables that are very similar and other operations that are 40 and 50 years old that are not being replaced and are not planned to be replaced, but because of some of the issues we are dealing with with trains coming in from the outside, low clearance of our vehicles, parts that are
hanging down, a lot of our cable has in fact been spliced. this is what our cable looks like. this is one of these places -- one of the splices. something like a sander hose that causes these delays because it shuts the system down. over time, what has happened is, as you may remember, the crew locates the splice. a repair it. we go back to service, but over 15 years, we have developed numerous splices in the cable. when there are splices in the cable, in some ridiculous box, you could lose the strength of the communications. it is safe, reliable, but not quite as reliable as new cable. up here are some of the reasons that we ourselves, our system has placed stress on the cable,
and we continue to need to have the cable perform at the highest possible level. this is -- again, i am sorry i keep going the wrong way. this is meant to be a visual in the middle there. i apologize for not having a pointer. the cable would sit between the track and the subway. i would remind the board, 98% or so is the average of our trains that are working and fully automatic mode. that is very important. you may remember last fall when we had problems, we had taken a number of actions, including upgrading the onboard software program on the computer as well as changing both our waste site and vehicle maintenance programs to keep at the high level. in the middle of the craft area, you see the dips, for example, on june 21. that is, to borrow a phrase, a day that will liven